Problems Affecting HCFA's Ability to Set Appropriate Reimbursement Rates for Medical Equipment and Supplies

HEHS-97-157R: Published: Jun 17, 1997. Publicly Released: Jun 26, 1997.

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William J. Scanlon
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Pursuant to a congressional request, GAO reviewed the problems associated with setting appropriate Medicare reimbursement rates for medical equipment and supplies.

GAO noted that: (1) the Health Care Financing Administration (HCFA) does not know specifically what products it is paying for when it pays Medicare claims for medical equipment and supplies, according to GAO's work to date; (2) HCFA does not require suppliers to identify specific products on their Medicare claims; (3) instead, suppliers use HCFA billing codes, some of which cover a broad range of products of various types, qualities, and market prices; (4) because Medicare pays suppliers the same amount for all the products covered by a billing code, the reimbursement system gives suppliers a financial incentive to provide Medicare patients with the least costly products covered by a billing code; (5) in addition, because Medicare claims do not identify the specific product provided, HCFA lacks the information it needs to ensure that each billing code is used for comparable products; (6) to identify specific medical equipment and supplies, the Department of Defense and some other major purchasers are beginning to require suppliers to use a universal product numbering system; (7) this system, which can also be used for bar coding the products, enables purchasers and insurers to identify specific products being used and track reimbursements for each product and groups of similar products as well as the market prices of specific products; (8) HCFA officials, on the other hand, have not begun exploring the possibility of using the universal product numbering system in the Medicare program; (9) Medicare reimburses large suppliers and individual beneficiaries the same amounts for medical equipment and supplies, even though large suppliers negotiate substantial discounts with manufacturers and wholesalers, while individual beneficiaries pay retail prices; (10) large suppliers provide some products, such as urological catheters and drainage bags, to nursing homes and home health agencies, which then provide them to individual Medicare beneficiaries; (11) in turn, the large suppliers can bill Medicare directly and get reimbursed at fee-schedule rates based on historical charges and catalog prices; and (12) HCFA has not considered establishing a separate fee schedule for products provided to nursing home and home health patients that accounts for their suppliers' substantially lower acquisition costs compared with the cost of products beneficiaries purchase directly.

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